Fiscal Policy

Fiscal policy is the use of government spending and taxation to influence the overall economy: expansionary fiscal policy, increasing spending or cutting taxes, aims to boost economic activity during a downturn, while contractionary fiscal policy, decreasing spending or raising taxes, aims to slow down an overheating economy. When a government spends more than it collects in tax revenue in a given year, it runs a budget deficit, financed by borrowing, which adds to the government's overall accumulated debt over time.

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